This lesson explores responsibility accounting as a system for delegating authority and measuring performance. It covers the different types of responsibility centres—cost centres, revenue centres, profit centres, and investment centres—and explains how performance is evaluated in each. This is a core component of both the US CMA and CIMA curricula, which identify responsibility accounting as a key topic .

• Responsibility Accounting Defined: Responsibility accounting is an information system that classifies data according to areas of responsibility and reports each area’s activities by including only the revenue, cost, and resource categories that the assigned manager can control . It establishes a communications network within an organisation that is ideal for gathering and reporting information about operations .

• Responsibility Centres: A responsibility centre is an organisational unit whose manager has been assigned the responsibility of managing a portion of the organisation’s resources . The five types of responsibility centres are:

  • Cost Centre: A manager is accountable only for controllable costs that have well-defined relationships between resources and products or services. “Z’s” maintenance department is a classic cost centre example .

  • Discretionary Cost Centre: A manager is accountable for costs where the relationship between resources and outputs is not well-defined (e.g., R&D, marketing). These centres have approved budgets that set spending limits .

  • Revenue Centre: A manager is accountable primarily for revenue, with success based on the ability to generate revenue .

  • Profit Centre: A manager is accountable for both revenue and costs, and for the resulting operating income .

  • Investment Centre: A manager is accountable for profit generation and can make significant decisions about the resources used, including investments in assets .

• Performance Reports for Responsibility Centres: Performance reports allow comparisons between actual performance and budget expectations . The performance report for a responsibility centre should contain only controllable costs and revenues—those that the manager can control .